Would the government’s decision to increase the home size for middle income group (MIG) under the credit linked subsidy scheme help in clearing unsold stock and reviving demand in the realty sector?

A day before, the Ministry of Housing and Urban Development approved increasing the carpet area in the MIG-I category of CLSS from the existing 90 square metre to up to 120 square metre and increasing the carpet area in respect of MIG II category of CLSS from the existing 110 square metre to up to 150 square metre. The changes are effective from January 1, 2017.

According to builders’ body National Real Estate Development Council (NAREDCO), this move would bring the entire demand for affordable housing under the interest subvention scheme, accounting for almost 96% of the total demand for housing in the country.

Confederation of Real Estate Developers’ Associations of India (CREDAI), another Developer’s body feels the average middle class in smaller towns and cities would now be able to afford bigger and better quality homes than before.

The increase in threshold limit would not only enable the middle income group buyers to avail interest rate subvention under CLSS, but also dilute the impact for the lower strata of the society with lower ticket size and that the subsidies might be more effective, if restricted to EWS/LIG segment in the interest of inclusive goal of housing for all.

Prime minister on December 31 last year had announced the CLSS under the Housing for All 2022 (Urban) for people belonging to the MIG category, valid till the end of December this year. However, the government last month extended the validity of interest subsidy benefit by 15 more months till March 2019.

According to a leading Real Estate Finance Company, the fence sitters specially, who were delaying their home purchase, would now be given a further push.

Builders, meanwhile, would not only enjoy the general uptick in the market that, but would also accelerate the sale of housing units which were earlier missing out on a sizeable portion of the Middle Income Group audience.

Would this decision of government beside helping in clearing unsold stock, also encourage developers to launch new projects?

CLSS or Credit Link Subsidy Scheme was launched by the Ministry of Housing and Urban Development under the Housing for All 2022 Scheme, on 22nd March 2017, for the Middle Income Group, to provide them with subsidy wherein the equated monthly instalments of the homebuyers would be brought down on housing loans availed by the buyers in urban areas. Now in a bid to further simplify the process, the government has now approved increasing the carpet area in the MIG I category of CLSS from the existing 90 square metre to up to 120 square metre and increasing the carpet area in respect of MIG II category of CLSS from the existing 110 square metre to up to 150 square metre. These changes are effective from 1st January 2017. The government expects the increase in carpet area to enable the middle income category of individuals to have a wider choice in developers’ projects. The Government also stated that the increased carpet area would also give a boost to the sale of ready built flats in the affordable housing segment. Carpet area is the area enclosed within the walls, and is the actual area to lay the carpet. This area does not include the thickness of the inner walls. It is the actual used area of an apartment. Would this have more takers?

Start – ups and digital service providers such as Quickr, Urban Clap, Housejoy most known for providing platform for housekeeping services such as plumbers, carpenters and cleaners are now tasked with keeping them on board. These services now attract 18% GST making them noncompetitive in comparison with the neighbourhood rivals, who get jobs typically based on the word of mouth. A recent report reveals that in comparison with the online and offline based services, the service providers are required to pay a staggering 18% GST if they operate in the online platform unlike the offline services, wherein they ought not to pay any service tax. A recent notification by the Government of India, with regard to the levy of GST reveals that irrespective of the service provider’s turnover services via online platforms would be liable to tax. This needs to be collected and paid by the platform. It has also become inevitable that the service providers, becoming a part of the formal economy have to start filing returns and maintain records even if they are below the threshold limits. Wouldn’t this type of levy discriminate between the two types of service providers which is much against the Government of India’s objective of formalising the digital sector, thereby making the country a Digital India? Doesn’t this hit the service providers and making their services costly, particularly when they are functioning with the aim of providing services for a reasonable prices when compared to the local neighbourhood providers? Wouldn’t this defeat the purpose of the establishment? Wouldn’t this make the prices of services more costlier when compared to the local neighbourhood costs?

The Government of India had launched “Housing for All” in rural areas in November 2016 under which the government along with the Ministry of Housing and Urban Development proposes to provide an environment friendly and secure house to every rural household by 2022. The government had in June 2015 given its approval for “Housing For All, 2022” for urban areas which provided for rehabilitation of slum dwellers, promotion of affordable housing for weaker sections through credit-linked subsidy and subsidy for beneficiary-led individual house construction or enhancement.

The Ministry, in a bid to further fasten the programme stated that by 2020, 2 crores houses would be created in Rural Areas. According to the Ministry of Housing and Urban Development, a universal Affordable Housing scheme would give a big boost to the construction industry as 1.2 crore dwellings will be built in three years under urban component and another 1.02 crore units under its rural component by March 2019. The government had also announced a new PPP (Private Public Partnership) Policy for Affordable Housing that allows extending central assistance of up to Rs 2.50 lakh per house to be built by private builders even on private land, besides opening up immense potential for private investments in affordable housing projects on government land in urban areas.

Block chain are a continuously growing list of records called blocks, which are linked and secured using a cryptography. A block chain serves as an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way, which is typically managed by a peer to peer network collectively adhering to the protocol for validating new block. A recent report claims that the block chain technology can solve the land – title problems faced by one and all, and would in turn eradicate the land grabbing issue prevalent in the country. Registration in India is merely a record of sales transaction and that it is liable to be challenged in the Court of Law. A title can be established only through a chain of transfer document, beginning from the first owner. However, the onus lies on the buyer, who has to examine all the records and link documents tracing the original owner. Isn’t this a tough exercise, particularly considering the difficulty in accessing all the land records? What are the measures to be implemented, to address the given situation in hand? The answer is the titling of land needs to be confirmed to one owner and there needs to be a clear trail and records of all transaction done regarding the land unit. For this to be achieved, the land governance needs to be simplified and digitalise the records. Whilst the digital footprint is an improvement over physical ledger of records, certain vulnerabilities would persist such as conflicting claims on ownership, bribery and corruption is altering the registered data, bureaucracies around third – party vetting, cyber attack and data theft, etc. Could there be a way where every land unit could be assigned a unique identification, every transaction would have a fingerprint, and the data is secure and immune to duplication and hacking? The answer is that the block chain solves all the above issues. How is that possible? The Block chain which is similar to a website in terms of modus operandi, wherein no minor or material alterations whatsoever could be made. Block chain enabled ledgers have a public key spread over millions of systems. therefore, with this enhanced feature a unique record of existing land distribution and transaction on a real time basis which can be reflected singularly to each party it is vested, without any centralised issue. Would the implementation of Block chain solve all the issues of people, more particularly the realty sector? Can block chain offer a feasible solution, coupled with various reforms of the government.

Central Mumbai where Elphinstone Road station is located, has been a goldmine for builders after the state opened up its erstwhile textile mill enclave for development a decade ago. The unabated construction spree in the Lower Parel-Elphinstone Road belt has choked the neighbourhood, attracting several lakh people every day and putting unbearable pressure on the two railway stations.

Real estate experts state that the total office space here was less than 30 lakh sq ft in 2005. But due to the state government’s liberal policies, it increased to 55 lakh sq ft by 2010 and crossed 1.3 crore sq ft by 2015. Around 11 million sq ft of office space is already occupied in the mill belt and surrounding areas, wherein a lot of retail, malls and food chains has attracted a huge floating population every day. The character of the area has suddenly changed from an industrial belt into a sought-after business district and high-end housing. The total office space is predicted to increase to 1.6 crore sq ft by 2021

Like every other case, any development comes with a pitfall. Similarly, due to wrong urban policies of the state which allowed higher FSI in the mill land belt for commercial development has led to a chaotic situation, wherein there are many a foot falls. In 2007, the state government granted builders permission to set up IT parks in this belt. IT parks have a much higher FSI (2.66) than the regular FSI of 1.33. This allowed many builders to construct more buildable area on their plots. Some builders misused this IT park FSI and sold or leased out space to banks and financial services firms, wherein many of the commercial towers have no IT-related activity.

Another controversial policy was where builders got to construct much more if they built a public parking tower free for Brihanmumbai Municipal Corporation, wherein the civic infrastructure could not handle the rashness caused due to construction. The BMC had not invested in creating public spaces and widening roads even as private space has increased. Would the tragedy serve as a “wakeup call” for planners, administration, realty sector and politicians?

The homebuyers who have purchased homes near the Dwarka expressway projects, where there are in and around 34 residential projects, in the Gurugram city in the NCR region have approached the National Highway Authority of India for expediting the completion of National Highway. The expressway project which was launched a decade ago has to see a plenty of problems and multiple delays due to hurdles associated with land acquisition. This non – completion had inturn affected the homebuyers in Gurugram city, who are unable to shift their homes. Though the Dwarka expressway was declared a national highway 18 months back, the actual work towards the completion of this project has not taken off. They are also unsure of the timely completion of the project, given the fact of multiple delays in the past decade. The homebuyers union had also complained of lack of seriousness among the authorities to complete the project on time. They have also stated that the six-lane elevated highway appears as though it is an ambitious plan to ease traffic and pollution level, but still there is no concrete plan from the government side for the timely completion of Dwarka expressway. There are around 90,000 homebuyers, who are affected due to the delay in the completion of the project and many have not been able to move into their flats because the road is still incomplete. How would the government redress this issue of the home buyers? Why is this lackadaisical performance of the government?

The Government of India, had notified that the Reserve Bank of India, the Apex Bank would regulate the P2P or peer to peer lending platforms, which are accorded the status of Non banking Financial companies. Wouldn’t such a regulation brought about by the Government, give a status and recognition to such Platforms, despite increase in costs due to requisite compliances?

What are P2P companies? The Peer to Peer lending or crowd sourcing for loans are a recent innovation, whereby the financial companies or financial technological companies pool in funds from individuals and lend it to business disinter-mediating banks. The P2P lending platforms do not take any credit risk on their own but rather use software and data analytics to measure the creditworthiness of the borrower. The P2P has to be distinguished from REITs and other financial schemes regulated by SEBI, since the money is always raised in the form of debt.

The Government would pass official notification in the gazette, after which the RBI would form guidelines for the regulation of P2P. Would the notification of RBI on P2P have a positive impact on the lenders? Wouldn’t this confer the P2P lenders, legal rights to take adequate steps against the defaulters? Wouldn’t it also mean that there would be wide acceptability by the borrowers too? Would Realty Sector be benefited by this notification, since lot of P2P lenders have also ventured into realty sector?

Real estate sector in India is undergoing a major transformation in terms of regulatory and policy framework apart from the shakeup in business environment. This ongoing process is also changing the means of finances or liquidity in the sector.

For the last couple of years, we have seen the emergence and wider acceptance of mezzanine or structured finance due to financiers’ lower risk appetite for real estate projects. Most of these transactions were structured to assure a minimum return for the lender even during the most uncertain times.

While this form of financing continues, equity capital is slowly making a comeback into the Indian real estate. Demand for equity is steadily going up among real estate developers, but the supplier of equity financing is also treading cautiously.

Most of the equity investors, including large global and domestic institutions, in Indian real estate sector are getting selective and choosy about whom they are partnering with due to the ongoing transformation in business environment itself.

The implementation of Real Estate (Regulation & Development) Act, 2016 and other factors such as the government’s demonetisation move and implementation of the Goods & Services Tax (GST) have impacted the business environment. And these changes, which are aimed at improving transparency, are also likely to attract more long-term and patient capital into the sector.

With these changes, it’s certain that there will be a rise in appetite for equity financing, but this would be cautious and case-to-case basis as the investors would like to be sure that they are partnering with a right candidate. They would also want to be clear about questions like what sort of liabilities come their way, will they be also liable for the project’s delivery and so on.

The market is at a crossroads from where only performance and track record will support builders have the confidence to move forward and ultimately homebuyers’ will also repose faith in offerings from such entities. Not only homebuyers, but financiers including equity investors will also back those realty developers who are known for execution, quality and delivery. Although equity is about risk, as always investors would like to play safe.